Not only is the affordable housing being built on land already owned and controlled by the city and county, but the modest number of affordable units proposed — just 100 apartments in Phase 1 — will be heavily underwritten by taxpayers to the tune of $100,000 per unit. And in Phase 2, 170 units are planned, with the city pouring in a staggering $200,000 per affordable unit.
Critics say that’s an awfully “special” public cost for what is, in fact, a luxury project comprising a five-star hotel, pricey shops and high-end condos — not an affordable-housing project.
Taxpayer largess: "The Grand" luxury complex facing Disney Hall at far
right.
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A telling report by the city’s chief legislative analyst, which was used to support the City Council’s decision to provide more than $66 million in tax breaks to developers, states, “Without a significant public contribution, the hotel will not meet industry internal rates of return on a project of this type.” In other words, much of the public subsidy is needed to prop up the glitzy, Gehry-designed Mandarin Oriental Hotel.
Given Dubai’s immense wealth and its desire to court Hollywood, is the renamed “the Grand” simply a bobble, initiated to raise Dubai’s profile in L.A., and not expected to provide investment returns, as CalPERS would have had to do?
Millay of Choate Hall & Stewart says no. Millay grew familiar with Istithmar when he was the executive director of the Wharton Global Family Alliance, a center for research on family wealth and family business. Istithmar, the ultimate example of family wealth, supported the Wharton center’s studies.
Millay says that even “if there are additional benefits to Dubai” as a result of its having a West Coast outpost in Los Angeles, Istithmar is not a vanity investor.
“Istithmar is certainly focused on generating returns for the assets they are responsible for,” Millay explains. “And [Istithmar’s CEO is] certainly focused on that. He’s a savvy investor. He’s not going to invest in a project that’s not going to make money.”
Groundbreaking is expected soon, and the plan for implementing the tax-subsidy package is expected to go before the Los Angeles City Council as early as next month. Has the promised $95 million-plus in city and county subsidies created the profit margin Istithmar experts needed? Should taxpayers be subsidizing a royal family?
“That’s a good question,” says Dennison. “I think Los Angeles should be far more concerned and far more attentive.” She added, “If more people had been involved, maybe [Los Angeles] as a whole could have done better.”
